VC Outlook Presents Ugly, Bad and Good (Mark Diggs Commentary)

The Ugly: Year after year, in national lists comparing Arkansas’ overall economic health to other states, we rank 50th or — on a “good day” — maybe even 49th. Adding insult to injury is the indication the state in front of Arkansas is “pulling away.” The standard reaction to these reports is to either dismiss the report out of hand, try to discredit the source, or produce various “statistical or semantics spins” to rebut the conclusions. In the face of the number and frequency of these reports, continuing to ignore the implications borders on the irresponsible, and continuing to do so could be very hazardous to Arkansas’ economic health.

The Bad: I believe the poor showing by the state is a reflection that contemporary economic development methods that have been historically successful in creating jobs and maintaining the economic vitality of the state are becoming increasingly ineffective with the advent of the new “knowledge-based economy.” Continuing to cling to the familiar yet ineffective is akin to “rearranging the deck chairs on the Titanic.” New methods specifically designed for the knowledge-based economy must be developed, adopted and implemented along with appropriate policy.

In order to make such a systemic change, a “critical mass” of policy makers, leaders, and stakeholders must first realize that:

• There is a significant difference between “economic growth” and “economic development”;

• The most critical factor in the “economic well-being” of any state, county or city in the knowledge-based economy is economic growth – not economic development;

• Economic growth is dependent on a very complex system of interrelated parts working in concert; and

• The most critical missing component in this system is “risk” capital.

In order to formulate effective new public policy that will support economic growth, it is imperative that individuals wanting to help make an impact on this issue have a good working knowledge of this complex problem. Downloading and reading the following three documents are a good place to start:

• Arkansas Department of Economic Development’s report developed by the Task Force for the Creation of Knowledge-Based Jobs is available at www.1800arkansas.com/taskforcereport.

• “Entrepreneurial Arkansas: Connecting the Dots” is available at www.wrfoundation.org/wrf_mainMX.html.

• “The Key to Growth in the New Economy: Investing in Discovery, Engineering, and Entrepreneurship” may be found at www.accessarkansasscience.org/releases/keys_to_growth.html.

The Good: The good news is a number of people and organizations have been working very actively on various aspects of this challenge and some concrete actions have been taken to begin to lay a solid foundation on which a viable future economic plan can be built.

Examples include:

• Arkansas Department of Economic Development’s Act 182

• Arkansas Science and Technology Authority’s Acts 417 and 857

• Arkansas Capital Development Corporation Act 86

• Venture Capital Act of 2001

• Arkansas Venture Capital Forum

Full text of Acts can be downloaded from www.arkleg.state.ar.us .

These are good first steps, but they are only a beginning. The state is so far behind that incremental changes will not work. Only bold and dramatic changes can make the impact that is needed. To maximize their impact, changes must be aggressive. An example of how not to be aggressive is the Venture Capital Act of 2001. It has been two years (and still counting), yet it is still not fully implemented.

So What? As an entrepreneur, I want to create new companies that generate new high-tech (knowledge-based) high-paying jobs and, in turn, reap financial rewards. “Risk” capital must be readily available for me to do so. The problem is there is virtually no “risk” capital available in Arkansas. Because of lack of enabling public policy, there never has been.

If policy makers will make the needed changes, entrepreneurs will be able to create the companies, jobs and opportunities that will move Arkansas from the bottom of the list, and the sooner, the better. n

Mark Diggs of Little Rock is chairman and CEO of Ontology Works Inc. of Odenton, Md. In 1989, he founded Software Innovators Inc. — now a division of publicly traded Brightstar Information Technology Group of Pleasanton, Calif.